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If developement exp once wrongly written off to I/S of cannot be again Capitilized / reinstated? what a accounting treatment if wrongly treated? explain it to me with example along little calculation?
Basically the point about this “rule” is that during the process of developing a product, much expenditure will be incurred. Until the product is declared by the directors to be viable and satisfying all the necessary criteria, all the expenditure before that date should have been expensed.
Having written it off to PorL, the rule says that it’s no good looking back and saying “we could have capitalised all that expenditure that we have previously written off. Let’s reverse it now with the benefit of hindsight!”
Not allowed! Once it’s been written off / expensed, it stays written off
Whose exam kit? And why have you not given me the full question? Re-instatement could be because the company has expensed it after the decision that it was a viable project.
Please, in future, don’t set me questions to test me. If you want me to explain, then you need to give me FULL information and not simply ask a generalised question about appropriate accounting treatment
Now, give me the full question and stop being such a tease!
I have, in fact, explained the situation in my post!
“Until the product is declared by the directors to be viable and satisfying all the necessary criteria, all the expenditure before that date should have been expensed.”
Sorry sir i donot want to tease you I want to like to strong by concepts. in Kaplan book there is a topics where there no examples provided. Both BPP and Kaplan doesnot provide full example over some complicated topic and these are often examined in paper. The question i asked were having no example provided e.g devepment expenditure re-instatment and lease as operating or finance lease.
Still sorry i u felt bad….
In the first instance, if development is taking place and the project is determined to be viable and to satisfy all the deferral criteria, then the development expenditure should be capitalised and NOT expensed. If the company has expensed the relevant costs, then we need to undo that bad entry – Dr Development Expenditure, Cr whichever expense category to which the amount has wrongly been debited
In your second question, where a finance lease is incorrectly dealt with as an operating lease (or, indeed, if an operating lease has been incorrectly dealt with as a finance lease) we need to “undo” the bad entries that have been put through the accounting records and then put through the correct entries for the correct accounting treatment
To undo, simply reverse out all the “bad” entries – this can feel strange in that, for example, you find yourself debiting Cash – but that’s only because you are reversing the bad entry Dr operating lease rentals, Cr cash. To reverse that we need to Dr cash and Cr operating lease rentals.
Now we have a clean page in front of us so we can put through the correct entries
OK?
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